LA JOLLA, Calif., Jan. 29, 2015 /PRNewswire/ — If you can't pay your federal student loan back, you are not alone. When you fail to repay a loan pursuant to the terms of the promissory note, your loan is in default. For federal student loans, this usually occurs when payment has not been made in over 270 days. Currently, the national federal student loan default rate is 13.7%.
Photo – http://photos.prnewswire.com/prnh/20150128/172144
Photo – http://photos.prnewswire.com/prnh/20150128/172145
The three prevailing consequences for defaulting on federal student loans are wage garnishment, a hit to your credit, and being barred from additional federal aid, which is very unfortunate if you are trying to go back to school.
A loan "rehabilitation plan" could be your way out if you default on your federal student loan. A rehabilitation plan is a one-time benefit that will cure a default and provide you with eligibility for federal student aid in the future. The basic premise of rehabilitating your loan is that you contact your lender or the collection agency handling your loan. Let them know you would like to get into a rehabilitation plan. Ideally, they will freeze any wage garnishment while you negotiate a payment plan. Typically, a rehabilitation plan is made up of nine timely monthly payments in a ten-month period.
Before you begin a rehabilitation plan, there are some helpful facts to get you through it. When you negotiate your monthly payment amount, your lender will most likely pressure you to higher monthly payments. The payments are supposed to be "reasonable and affordable" which is open to debate between borrowers and collectors. New laws that went into place in 2014 require lenders to use a formula similar to computing payments under an income-based repayment plan (15% of your disposable income) to determine your monthly payment. It is important to know that this is a starting point for negotiating your monthly payment. If your financials warrant a reduction from this amount, you can request it. Collectors have incentives to attempt to get your payments set as high as possible. Stand firm on your position to get a reasonable and affordable payment. You can always seek the assistance of the Department of Education if you are still getting resistance or if you feel the collector is violating the law. It is crucial to note that at you are only allowed to rehabilitate your loan once, so it is vital that you negotiate terms you can truly afford.
Once your loan is successfully rehabilitated, you become eligible again for all of the benefits of a federal student loan including deferments, forbearances and income-based repayment plans. Furthermore, your default will be removed from your credit history. It may take up to 90 days after you complete the rehabilitation to see the default removed.
With such a high percentage of Americans defaulting on their federal student loans, it's a relief to know there is a way out of default with a rehabilitation plan. If you tried negotiating a plan and still aren't getting the results you want or are uncomfortable negotiating on your own, you may want to consult with an attorney who focuses on debt. Most debt settlement attorneys will give you a free consultation. You can also find out more information at www.debt.org.
Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, Email or visit gamezlawfirm.com.